Medicare, the nation’s largest health insurer, plays a crucial role in providing healthcare coverage to millions of Americans. Yet when it comes to substance use disorder (SUD) treatment, there are significant gaps. While Medicare covers inpatient hospital services, it does not cover residential or intensive outpatient SUD programs—services that are often critical for effective recovery. This lack of Medicare substance use disorder coverage leaves many beneficiaries without the step-down care they need after hospitalization, creating a cycle of recurring health crises and higher costs.
“I would bet you dollars to doughnuts that would actually save the government money, if they permitted treatment at a lower level of care,” said Landmark Recovery CEO Matt Boyle. Landmark Recovery, founded in 2016, offers a comprehensive spectrum of SUD programs, including medical detox, inpatient and outpatient rehab, partial hospitalization, medication-assisted treatment (MAT), and therapy programs. The organization has been growing quickly and intends to operate 40 facilities by the end of 2023, reflecting both the demand for these services and the potential for scalable solutions.
The History of Medicare SUD Coverage
The history of Medicare’s limited coverage for SUD treatment has its roots in the Mental Health Parity Act of 1996, which initially excluded reimbursement for substance use disorder. Although the 2008 Mental Health Parity and Addiction Equity Act mandated that commercial insurers and Medicaid cover SUD treatment, Medicare was notably left out. Fee-for-service Medicare continues to operate outside parity requirements, allowing it to set its own rules regarding coverage. As health care attorney Jena Grady explains, “Fee-for-service Medicare has never been under [a] parity plan similar to commercial, Medicaid managed care, or Medicare Advantage plans. So basically, Medicare gets to set its own rules.”
The lack of Medicare substance use disorder coverage has increasingly come under scrutiny. Public opinion is shifting in favor of expanding access to SUD services. According to research from the Program for Public Consultation, 75% of Americans support spending $10 billion to fund SUD treatment for those who cannot currently access it. Grady notes, “Why is there such a reduction in access to services that are usually … in the middle of screening versus you’re being hospitalized? And why aren’t we covering Medicare for these residential and intensive outpatient services?”
Why Step-Down Care Matters
The absence of residential and intensive outpatient programs is more than a coverage issue—it’s a clinical concern. Step-down care provides a structured environment where patients can transition from inpatient care to outpatient services while maintaining support. Without these programs, patients often experience gaps in treatment that can lead to relapse, readmission, and higher medical costs.
Inpatient psychiatric hospitals are designed primarily for individuals with severe, acute conditions such as uncontrollable schizophrenia or acute suicidal ideation. “A psych hospital is a generalist facility for really, really sick people who are actively suicidal or who have uncontrollable schizophrenia,” Boyle said. “The vast majority of people with substance use disorder don’t really need to be in a setting that’s that restrictive.”
While outpatient care is available to Medicare beneficiaries, it is limited to specific settings such as primary care offices, hospital outpatient programs, Medicare-enrolled treatment programs, or community mental health centers. These restrictions make it clear why expanding Medicare substance use disorder coverage to include residential and intensive outpatient programs is so crucial.
Financial Implications of Expanding Coverage
Expanding Medicare substance use disorder coverage for residential and intensive outpatient SUD programs is not just a moral imperative—it may also be financially prudent. According to research from the Legal Action Center (LAC), expanding these services would cost approximately $1.9 billion per year. However, reductions in hospitalizations and other medical costs related to untreated SUD could save Medicare $1.6 billion annually, resulting in a net impact of just $362 million—or roughly 0.04% of the Medicare budget.
Ellen Weber, senior vice president for health initiatives at LAC, emphasized the cost-benefit argument: “The lack of Medicare coverage for SUD treatment is penny wise and pound foolish. It leaves millions of beneficiaries without adequate treatment until their conditions become acute enough to require hospitalization. Medicaid and the VA both cover comprehensive SUD treatment. Why are our nation’s older adults denied the opportunity to receive [life-saving health care]?”
The Scope of the Problem
Substance use disorder is not limited to younger populations. About 1.7 million Medicare beneficiaries live with SUD, yet only 11% receive treatment. Among these beneficiaries, roughly 1 million are over the age of 65. However, Medicare coverage is not exclusive to seniors—14% of beneficiaries are under age 65, often on disability, a group statistically more likely to struggle with substance misuse. Boyle noted, “People on disability are highly, highly likely to be abusing substances in some way, shape, or form.”
The lack of access to appropriate SUD care is concerning because untreated substance use disorders often lead to co-occurring health conditions, including cardiovascular disease, liver disease, and mental health disorders, which further increase healthcare costs and strain the system. Expanding Medicare substance use disorder coverage could prevent many of these complications.
Legislative Momentum and the Biden Administration
Federal policy may finally be catching up. The Biden administration has emphasized the importance of behavioral health parity, particularly in expanding access to SUD treatment. The president’s 2023 fiscal budget included a $3.5 billion proposal to improve Medicare’s mental health coverage. If passed, this initiative would eliminate the 190-day lifetime limit on psychiatric hospital services and extend the requirements of the Mental Health Parity and Addiction Equity Act to Medicare.
Boyle highlighted the inequity in current law: “Medicare is allowed to not cover residential treatment. … If you’re Blue Cross Blue Shield, you couldn’t not cover residential treatment. It’s the law, since the Affordable Care Act and the Mental Health Parity Act. And so yeah, I don’t think I’m looking for anything that’s that radical.”
Expanding Medicare substance use disorder coverage could save lives, improve patient outcomes, and reduce long-term healthcare costs. The combination of public support, emerging research, and federal policy initiatives suggests that the nation may finally see more equitable access to SUD treatment for all beneficiaries.
Looking Ahead
The potential expansion of Medicare substance use disorder coverage represents an important step toward bridging long-standing gaps in care. By including residential and intensive outpatient programs, Medicare could provide beneficiaries with the level of care they need, reduce hospitalizations, and ultimately improve quality of life for millions of Americans struggling with substance use disorders.
As Landmark Recovery and other organizations continue to expand treatment options and advocate for coverage, the hope is that Medicare will evolve to provide equitable, comprehensive care, ensuring that older adults and younger beneficiaries alike have access to life-saving SUD services.
